The thaw in the commodity markets, and the stock markets are still in deep ice
As 2023 searches for a foothold, commodity and stock markets continue to tread paths wrought by last year’s higher-than-expected inflation, a brutal war in Russia, a potential surge in the global pandemic, and a growing power vacuum in American politics.
Stock markets hated the bad news of 2022 and most market indices hit yearly highs in early January. After that, it was downhill most of the time. For example, the Dow Jones Industrial Average fell 9% last year.
The broader market gauge, the S&P 500, lost 19.4% of its value and the technology-heavy Nasdaq lost 33.1%. Finally, the Spectator tweeted on New Year’s Day that global stock markets lost $18 trillion in collective value in 2022, or the equivalent of about three-quarters of annual US GDP. No chicken feed.
attempt the impossible
In contrast, commodity markets often ignore gloom and pessimism and use both as rocket fuel to shoot the moon – place big bets – on prices. That’s exactly what happened in December when difficult weather forecasts here and abroad and falling US livestock and poultry numbers sent futures prices on fire.
For example, year-end inventory reports from the USDA strongly suggest that lower US pig and cattle numbers will keep red meat markets on their current higher price path. This is especially true for live cattle whose April futures contract expired in December just short of an annual high of $1.62 per pound.
Grain futures also saw a year-end rally. Soybean futures for November 2023, reflecting mounting production woes in Argentina, rallied throughout the holiday season and ended 2022 near the contract high of $14.50 a bushel.
This quick move from soybeans has inspired both new crop wheat and new crop corn contracts to come out of their early winter hibernation for a similarly quick move by the leader higher as well. However, a small rally doesn’t look as sustainable as a strong move by soybeans.
Unresolved questions about the South American crop will keep global markets on edge until hard answers – best provided by working groups – start to trickle in sometime around mid-February.
Until then, an even bigger wild card, the rapidly spreading Covid-19 pandemic in China, could easily undermine any other market pusher, up or down, in both the stock and agricultural commodity markets. The reason is that the deadly mathematics centered around Covid is now increasingly preying on the people and economy of China.
It is the almost inevitable result of a years-long and controversial national Covid-isolation policy. It was designed to prevent the spread of disease, which led to widespread political discontent and, ultimately, open defiance. When China’s tormented leaders lifted the restrictive rules last month, Covid — predictably — quickly filled hospitals and mortuaries.
With China claiming not to track Covid hospitalizations or Covid deaths, at least officially, it is difficult to judge the immediate impact of the pandemic on the world’s largest population and second largest national economy.
Comparing what the United States has seen since 2020 to what China may see in 2023 suggests some very bleak times for America’s largest agricultural export buyer. For example, through December 2022, the total number of American deaths related to Covid is 1.1 million out of a population base of 332 million.
If China – which has 4.3 times the population (or 1.43 billion of the total population) – loses the United States by the equivalent of Covid, it can expect 4.7 million Covid deaths. This estimate on the back of the envelope is nothing more than that, it is not a prediction or prediction. However, this is one market-changing potential that hangs over nearly every commodity and stock market from Chicago to Shanghai.
Initially, Bloomberg News suggested in late December, China’s reopening “is set to boost demand for crops.” And it did, seeing commodities rally in late December.
January could see a similar boost because from January 8, China will lift restrictions on the “import of chilled and frozen foods”. Cool — or perhaps frozen — might be the best word to describe the political prospects of 2023 in Washington, D.C. given the Republican House caucus and its slender majority.
On second thought, let’s go with Frozen. Or better yet, “Let It Go…”
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